At most companies, new employes receive a booklet listing the firm's benefits package. At American Can Co., new hires get a shopping list.
American Can offers its white-collar employes a flexible benefits package, giving workers credits they can apply to purchase thousands of combinations of benefits in addition to a core package that every employe receives.
As fringe benefits account for an increasing share of the total compensation dollar -- 35 percent, according to a recent Bank of America study -- companies are looking at the flexible approach as a means of controlling costs.
So far, only a few companies have adopted the programs, also known as cafeteria plans. One reason is that passage of the Employe Retirement Income Security Act in 1974 put a hold on such plans, noted Thomas Paine, a partner in the consulting firm of Hewitt Associates. Before that, only TRW Inc., a conglomerate based in Cleveland, and Educational Testing Service of Princeton, N.J., the firm that produces college entrance exams, had developed flexible programs.
Although not technically a cafeteria plan under the ERISA definition, American Can's program is the largest flexible-benefits program to date, affection 8,600 salaried employees.
Following a one-year test period at its Consumer Towel and Tissue Division in 1978, American Can expanded the program to all white collar employes this year. With the benefit selection process well under way for next year, Richard Wibbelsman, director of salaried benefits and human resources, reported that 60 percent of those returning forms have made no changes at all.
Wibbelsman said in a recent interview that the program is aimed at giving the company more employe satisfaction for each benefit dollar spent. The theory behind such plans is that employes of different ages, marital status, life styles, etc., have different benefit needs. If, example, a married employe is covered by a spouse's health insurance program, American Can is wasting money providing the worker with medical insurance.
"For the same number of benefit dollars, you can provide more benefit opportunities to employes," Webbelsman said.
At American Can, each employe is covered by a core package of benefits, including medical, disability and life insurance, retirement coverage and vacation benefits. Then, depending on length of service and other factors, each employe gets a certain number of dollars in credits to apply toward added coverage in any or all of those areas.
Although the program is designed to save total costs of benefits, Wibbelsman said it's too soon to tell if the firm is saving anything. First, start-up costs are tremendous, including the expense of educating employes, developing the computer programs to handle the plan and negotiating new rate structures with various insurance carriers.
After one year in the program, American Can and its carriers still are adjusting rates for medical and other coverage -- and next year's coverage under the flexible-benefits program will cost substantially more for certain medical options.
Medical coverage costs have increased faster than other benefits already, and the flexible program at American Can offers several options in that area, Wibbelsman noted.
The old program included a very complete medical coverage that rewarded people for hospital care and punished outpatient care. Under the flexible plan, employees have to pay for that coverage, but can save credit dollars by increasing their deductible levels.
Now about 90 percent of the company's covered employes are out of the old medical plan, which would cost them $630 in credits to maintain.
Medical costs represent the key area in which flexible-benefits plans offer long-term savings. Medical coverage has become increasingly expensive in relation to other benefits, Wibbelsman noted. But by pricing extra coverage so that employes share in those cost increases, the company expects that workers will opt for relatively less in company-paid medical coverage and buy more of those benefits that are less inflation-prone.
The goal of the plan is to keep benefits at a constant percentage of total employee costs, and the firm won't "break even" until at least 1982 or 1983, Wibbelsman said. But with an annual payroll of $200 million for white collar employes and benefits valued at $90 million per year, American Can is in a position to increase its net income respectably through benefit cost controls.
Flexible benefits are relatively recent factors on the corpate scene, although the idea has been kicking around for many years. One of the objections most commonly raised against the concept is that the employe really can't comprehend the range of options available and is better off having benefits handed to him or her.
With that caveat in mind, American Can approached the program cautiously, apportioning 80 percent of total benefits to a core package and only 20 percent to flexible benefits. If a company isn't providing a substantial benefits package already, flexible-benefits programs aren't feasible -- because the smaller core package must provide all needed, minimum coverage, Wibbelsman said.
The company spend 27 months developing the plan, negotiating new rates with insurers and educating employes.
"We haven't really found any evidence of people totally failing to comprehend the program," Wibbelsman reported.
As an added safeguard, the company put reasonability checks into the computer program to flag those option choices that seemed unreasonable. But almost all employes whose choices seemed unreasonable had very good justification for them, Wibbelsman said. The company won't recommend certain option choices, nor will it reject anyone's plans.
The firm also can't provide counsel on selections because of legal liability for choices made on corporate advice. But safeguards in the computer program allow the firm to point out different avenues of coverage when a seemingly "incorrect" choice is made.
The most recent flexible-benefits program was implemented at Minnesota Power and Light, a utility in Duluth, and Paine said more are on the way.